When preparing to file bankruptcy, how long should I wait since I last refinanced my home? 3 Answers as of July 30, 2010

I am going to be filing bankruptcy (hopefully a chapter 7). I heard that if you have too much equity in your home it can make it more difficult. I refinanced a little over 2 years ago (taking some equity from the home). Will a judge look at that? Is that the right amount of time?

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David Nelson
David Nelson | David Nelson
The question is how much equity do you have? Call me if you’d like to go over this in detail.

When you file bankruptcy, there are two main issues: Do I Qualify and Can I Keep All My Stuff?

Keeping your assets is a think inside the box deal. If your stuff fits inside the box you keep it. When you open the box there are two lists describing the stuff you can keep. The lists were created in California, by the California legislature and they were tailored to California.

California made two lists. One is great if you're a renter or a homeowner with no equity in the home, and one is great if you're a home owner with substantial equity. When you have substantial equity you can keep $75,000 in equity if you're single, $100,000 if you're married and $175,000 if you're over 65 or permanently disabled. Called a homestead, this is the amount of the equity you can keep if you file bankruptcy or if you are sued in California.

Equity is the value of the home minus the mortgages or other liens on the home. For example: if the house is worth $300,000 or would sell for $300,000 and the mortgages add up to $200,000 then the equity is $100,000.

A quick way to get a close approximation of the value of the home is to go to http://www.Zillow.com and plug in your address, just the number, street name and zip code is enough. The website will give you an estimate but it's a rough estimate. If you click on the link that says "similar sold" the website will give you a list of similar houses to yours which have recently sold and for how much. Also included will be the date built and size of the property and how many bedrooms and bathrooms.

Look for the most recent sale of a house substantially similar in size and preferably less than about a half mile away. That will give you the best approximation of the value of your home. Then you'll have to consider whether you have any major upgrades and so on. You can even click on that sold house's listing and see what it looks like compared to yours.

The balance on your mortgage is the principal balance, and add to that all the arrears or missed payments. Bring your most recent mortgage statements for all mortgages to our appointment for your initial consultation. If you don't have any recent ones, bring the last one that was sent to you. If you have already gotten a notice of default or a notice of trustee's sale taped to your front door, bring those too.

Whether 2 years since you refinanced is the right amount of time, would depend on how much equity you pulled out and what did you spend it on or where did you put it. If you pulled out $20,000 two years ago put in a small pool or some landscape or redid the kitchen and all that money is gone, then it's no big deal. If you pulled out $70,000 two years ago and you popped it into a savings account and now there's no equity in the house, you've got a problem.

If you're a renter or you have no equity in your home, you will still have a homestead value of about $22,000 which you can apply to anything else you own. For instance, a client of mine has a rookie Michael Jordan (basketball not baseball) and it's in near mint condition. It's worth a lot more than your average sport's card. So his Michael Jordan rookie card now becomes his homestead. If he owned a quadrunner that could be part of his homestead too and if he owned a coin collection with twenty 100 ounce silver bars, that could be his homestead. If it were twenty 1 ounce gold Krugerands, he might even keep all of them (unless the price of gold goes up).

So the previous paragraph is designed to illustrate that if you pulled out $70,000 and had put it into a savings account, you could probably keep about $22,000 of it. If your debts are in the upper 200K range or more that's a good deal.
I only practice in California. If you are outside California, this is not for you. If you are in California, call for an appointment by phone or in person.
Answer Applies to: California
Replied: 7/30/2010
Diefer Law Group, P.C.
Diefer Law Group, P.C. | Abel Fernandez
It depends how much you took out at that time and what you did with the money. A bankruptcy attorney would be happy to go over the specifics of your situation. For more information feel free to call me.
Answer Applies to: California
Replied: 7/29/2010
Fasel, Fasel, & Nefulda, LLP
Fasel, Fasel, & Nefulda, LLP | Thomas Fasel
If you have too much equity in your home, you may not be able to keep it in a Chapter 7 filing and other options may want to be explored, such as a Chapter 13 bankruptcy. Please contact me if you would like to discuss further.
Answer Applies to: California
Replied: 7/29/2010
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